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There is a common misconception that if you insure an asset for more than it’s worth, you’ll receive a larger payout in the case of a disaster and total loss of that asset. However, this is not true. This is known as overinsurance, and can actually lead to financial loss for businesses due to paying higher premiums that reflect no benefit. 

In our recent Insurance Gap Report, we discovered that the rates of insurance for some businesses we investigated were higher than they needed to be. 13.1% of sites we visited were overinsured for property, an increase of nearly 2% in just two years.

In this article, we will unpack the meaning of overinsurance, how it impacts businesses, and, most critically, how it can be avoided to prevent any losses.

What is overinsurance?

Overinsurance occurs when a policy holder insures their assets for more than the actual value to reinstate them in the case of a total loss. 

For example, if a piece of your machinery is worth around £200,000, but you have taken out an insurance policy to cover it for £300,000 – this would mean your asset is overinsured. If this asset was destroyed, the insurer would only pay out £200,000, and the extra premium would be completely wasted. 

Here are some of the common causes of overinsurance for businesses:

1. Indexation 

Policyholders may often apply automatic percentage increases to their asset’s reinstatement costs each year in order to account for the impact of inflation impacting these costs. This is known as indexation. 

While this is good practice to prevent underinsurance, these indices, if applied indiscriminately, can increase coverage beyond what is necessary. If the actual replacement cost of certain machinery has decreased over time, for example due to increased supplier competition or technology advances, but a generic 5% index is added every year, the business ends up insuring for too high a value.

2. Misjudged asset allocation 

For businesses with multiple sites, warehouses, or offices, their assets will rarely be fixed to the one location. Often, machinery is moved, stock is transferred, IT equipment is distributed, and medical equipment is shared out. 

A site may be adequately insured for the assets typically within their everyday facilities, but once it moves to another location, they could end up overinsured as they may be paying premiums for equipment that is no longer there. 

This also creates an issue with underinsurance, where the site that has received the equipment does not have coverage that reflects these new assets. In the case of damage or total loss in an insured event, such as a fire, it could mean that this site won’t receive a full payout. They will be forced to find the remaining capital to reinstate the assets that have been lost, impacting business finances to close that gap. 

3. Depreciation

Assets usually decrease in value over time – due to physical, economic or functional obsolescence. This can often happen in the time between Reinstatement Cost Assessments (RCA) being carried out, which is typically every three years as recommended by the Royal Institution of Chartered Surveyors (RICS).

If a business insures an asset on the basis of indemnity value or actual cash value, rather than full reinstatement, for example where they may not wish to reinstate in the event of a loss, they will end up overpaying on premiums if they are not reflecting these additional obsolescence factors over time. 

4. Inaccurate estimations 

When businesses take out an insurance policy, if they have not carried out an RCA in a few years, or their asset has substantially changed since their last valuation, they may be unsure what it is actually worth. When this happens, businesses may round up the figure they have in mind, just to be prudent. 

However, without a proper review and accurate figure in mind, this estimation can lead over time to material overinsurance – highlighting the need for regular and accurate insurance valuations.

What happens if you are overinsured? 

While this overpayment may not seem to carry the same immediate risk as underinsurance, , it actually still poses many issues to a business over time. Being overinsured means your business may face the following:

  • Higher premiums: an insurance policy taken out for more than the asset’s actual value leads to higher premiums, which is ultimately wasted payments as the insurer will only pay up to the asset’s value and no higher. 

 

  • Unnecessary financial pressure: capital that is used towards redundant insurance coverage could otherwise support corporate savings or strategic investments. Using business funds on unusable policies ultimately creates a strain on finances, especially if the overinsured policy is in place for several years. 

 

  • Complex claims processes: when a claim needs to be made, overinsurance can cause some complications. Insurers may see the high premiums on a business’ insurance policy and investigate the claim much closer than they would have done if the asset was appropriately insured. This can lead to delays or even disputes, putting a strain on business continuity if they rely on quick recovery for their operations. 

Our recent overinsurance findings

At Charterfields, we prepare an annual report analysing the extent of under or over insurance across various UK sectors. Within each industry, we evaluate the state of insurance for both buildings and civil works, and plant and equipment. 

The research informing this report is drawn from comprehensive Reinstatement Cost Assessments (RCA) conducted across numerous locations per sector. 

Our 2026 report found that across both buildings and contents assets, a handful of locations were overinsured: 

Our findings indicate that businesses across many locations are struggling to accurately assess and insure their assets. Through whatever cause, these overpayments are leading to further long-term issues that can be easily prevented. 

How to avoid overinsurance

The best way to avoid overinsurance and its negative effects is to carry out frequent insurance valuations. An RCA is a professional report, best carried out by a RICS-regulated firm. This helps determine the accurate costs to reinstate or replace the existing assets or property “as new” in the event of a total loss by an insured event. 

The purpose of an insurance valuation is to ensure that businesses have appropriate coverage to prevent these potential losses. They ensure that the insurance policy is up to date with the latest costs that may impact reinstatement, such as supply chain disruptions, currency exchange fluctuations, labour shortages, and inflation. Overall, this frequent practice prevents the business from suffering financially after an insured event. 

Due to the volatility of these factors, we at Charterfields recommend that declared values should be updated annually, even if this is just an indexation to reflect current rebuild inflation, or if assets materially change. This doesn’t always require a full inspection and rebasing, but adjustments need to reflect the correct inflation, any capex movements and any other changes on site. 

Ensuring your asset register is updated by location in real-time as assets are moved around and purchased also ensures that you avoid overinsurance from misjudged asset allocation, as discussed above. Up-to-date asset registers safeguards your insurance policy and guarantees that every asset in your inventory is accounted for and protected. 

We offer a number of areas of asset management and financial reporting support, including the design and implementation of asset registers for insurance, financial and engineering applications, asset reconciliation, depreciation profiling, and more.

Partner with the experts in insurance valuations and asset management

If you’re concerned that you may be at risk of overinsurance, or it has been a while since you last carried out an RCA on your assets, it may be time to arrange your next insurance valuation. 

A regular RCA is a crucial step in avoiding the risk of assets being overinsured, and businesses wasting high premiums. We recommend that businesses be aware and vigilant of their risk profile changing in an ever-changing world. 

At Charterfields, we specialise in insurance valuations and helping organisations with their asset management. Feel free to get in touch with us if you’d like a no obligation proposal to assess your buildings and/or contents to ensure you’re adequately covered, or to discuss your asset register.